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Class M-3 of Ace Securities Corp. mortgage-backed securities, series 2003-HE3, has been downgraded from BBB to BB by Fitch Ratings, and three classes from two Ace subprime transactions have been placed on Rating Watch Negative.The securities placed on rating watch were class M-2 of series 2003-HE3 and classes M-5 and M-6 of series 2003-FM1. In addition, the rating agency affirmed the ratings on six other classes from the two transactions. Fitch said the negative rating actions were taken because monthly losses exceeded the available excess spread in recent months, causing a deterioration in the amount of overcollateralization. The rating agency can be found on the Web at http://www.fitchratings.com.

The long-term issuer rating of Doral Financial Corp., a mortgage lender based in San Juan, Puerto Rico, has been lowered from BB-minus to B-plus by Fitch Ratings.Among other rating changes, Fitch also downgraded Doral's senior debt from BB-minus to B and its preferred stock from B to CCC-plus, and lowered the long-term issuer rating of Doral Bank, a subsidiary, from BB to BB-minus. The ratings remain on Rating Watch Negative. Fitch said the actions stemmed from "a combination of near-term and long-term challenges." The former include the refinancing of $625 million of unsecured debt coming due July 20, 2007, and low capital levels, although Fitch added that Doral is still well capitalized by regulatory standards. The long-term challenges include regulatory restrictions on Doral Bank, capitalization levels, poor operational performance in 2006, the potential financial impact of lawsuits, and the change of Doral's business model from that of a mortgage company to that of a full-service bank.

In the third quarter, 89% of the homeowners who refinanced their homes got a mortgage at least 5% larger than the original loan, according to Freddie Mac.The percentage was up from 88% in the previous quarter and 73% a year earlier, the government-sponsored enterprise said in its quarterly refinance review. "Mortgage borrowers continue to refinance their mortgages at a higher frequency than historically would have occurred given the rise in mortgage rates over this year," said Frank Nothaft, Freddie Mac's chief economist. "But the wide proliferation of adjustable-rate mortgages originated in the past few years that are nearing their first interest-rate adjustment provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage." In the third quarter, 41% of all mortgage applications were for refinancings, down from 42% in the second quarter, Freddie Mac reported.

The long-term issuer default ratings of R&G Financial Corp., San Juan, Puerto Rico, and R-G Mortgage Corp. have been lowered from BBB-minus to BB by Fitch Ratings.Fitch also downgraded R&G Financial's preferred stock from BB to B, lowered various ratings of other R&G subsidiaries such as R-G Premier Bank and R-G Crown Bank, and assigned a rating outlook of negative. The rating agency said the actions stemmed from various concerns, including a longer-than-expected delay in releasing audited financial statements for fiscal year-end 2005 and quarterly financials for 2006, regulatory restrictions on subsidiaries, the company's operational performance in 2006, and the mix and level of its capitalization. In January, R&G Financial announced the resignation of Ramon Prats as vice chairman and president, and as president of R-G Mortgage and R-G Premier Bank, in connection with an investigation by the company's audit committee. The probe related to the company's need to restate its earnings for 2002, 2003, and 2004. Fitch can be found online at http://www.fitchratings.com, and R&G Financial can be found at http://www.rgonline.com.

Fannie Mae acquired $66.59 billion in mortgages during September, its best purchase month of the year.Loan acquisitions rose 36% from their August level, but compared with September 2005, purchases fell 6%. September tends to be a good month for secondary-market activity, reflecting loan applications filed in the summer that result in fall closings. Fannie's chief competitor, Freddie Mac, purchased $41.4 billion in mortgages in September, a 34% decline from the level of a year earlier. In August Freddie purchased $43.2 billion. At the end of September, Fannie had a retained portfolio of $726 billion and Freddie's totaled $702 billion. The government-sponsored enterprises can be found online at http://www.fanniemae.com and http://www.freddiemac.com.

RealtyTrac, an online foreclosure marketplace based in Irvine, Calif., has reported that 318,355 properties nationwide entered some stage of foreclosure in the third quarter, a 43% year-over-year increase.The number represented a 17% increase from the level recorded in the second quarter. The company's Q3 2006 U.S. Foreclosure Market Report is based on the company's database of pre-foreclosure and foreclosure properties, which it says includes nearly 650,000 properties in more than 2,500 counties across the country. "Higher interest rates and a general softening of the real estate market are the two key factors contributing to the 43% increase in foreclosure filings from the third quarter of 2005," said James J. Saccacio, RealtyTrac's chief executive officer. "What our third-quarter research appears to be showing is that the first wave of adjustable-rate mortgages is having a negative impact on the number of homes going into foreclosure." The company said Colorado, Nevada, and Florida had the nation's highest foreclosure rates in the second quarter. RealtyTrac can be found online at http://www.realtytrac.com.

Five classes of Asset Backed Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings, and two have been assigned Distressed Recovery ratings.The downgrades were as follows: series 2001-HE1, class M-2, from BBB-plus to BBB-minus, and class B, from BB to B-plus; series 2002-HE2, class B, from BB-minus to CCC; and series 2003-HE1, class M-3, from BB to BB-minus, and class M-4, from BB-minus to C. Class B of series 2002-HE2 was assigned a Distressed Recovery rating of DR2, and class M-4 of series 2003-HE1 was assigned a rating of DR5. (The ratings range from DR1, the highest, to DR6 to designate a transaction's recovery prospects.) In addition, Fitch upgraded two classes and affirmed the ratings on four classes in four ABSC deals. The rating agency attributed the downgrades to a deterioration in the relationship between loss expectations and credit enhancement. The transactions consist of fixed- and adjustable-rate subprime mortgage loans on one- to four-family properties. Fitch can be found online at http://www.fitchratings.com.

Twenty-two classes from 12 Morgan Stanley mortgage-backed security transactions have been downgraded by Fitch Ratings.In addition, Fitch upgraded three classes and affirmed the ratings on 59 other classes in 19 deals. The downgrades were attributed to deterioration in the relationship between credit enhancement and loss expectations. The loans consist of fixed-rate and adjustable-rate mortgages extended to subprime borrowers and are secured by first and second liens, primarily on one- to four-family residential properties, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

The Financial Accounting Standards Board has voted six-to-one to exempt regular collateralized mortgage obligations, on a preliminary basis, from Financial Accounting Standard 155, according to an RBS Greenwich Capital report."This is good news for the liquidity of the CMO market, as well as other 'prepayable' securitized products such as auto ABS," said Alec Crawford, a mortgage strategist at RBS Greenwich Capital. The decision is "positive" and "critical for the mortgage markets," as it addresses "what appears to be an inadvertent accounting charge for certain asset-backed securities," said Charlie Gilman, the American Bankers Association's accounting policy adviser. "That said, we are reviewing the problem to determine how much of the problem it alleviates."

Class B-3 of Specialty Underwriting & Residential Finance asset-backed certificates, series 2005-AB1, has been placed on Rating Watch Negative by Fitch Ratings.Fitch also upgraded two classes in two SURF transactions and affirmed the ratings on 26 classes from four SURF deals. The negative rating action was attributed to monthly collateral losses that have caused a deterioration in the overcollateralization. SURF acts as program administrator for the seller, Merrill Lynch Mortgage Lending Inc., and its loan acquisition program facilitates the purchase by the Merrill Lynch company of eligible nonconforming loans from various SURF-approved originators, Fitch said.